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Posted December 12 2011

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Big Business

Longevity insurance answer to employers defined benifit pension plans

Innovation protects pension plans from unexpected increases in members' life expectancy

TORONTO - Sun Life Financial has introduced an innovative solution designed to lessen life expectancy risk for companies that offer defined benefit (DB) pension plans to employees. Longevity insurance provides plan sponsors with protection from the extra pension costs that arise if their plan members live longer than expected.

"From a company perspective, longevity insurance reduces cash and earnings volatility, allowing management to focus its time and attention on running its core business," said Brent Simmons , Senior Managing Director, Defined Benefit Solutions, Group Retirement Services, Sun Life Financial Canada. "From a public policy and pensioner perspective, risk is transferred to a highly regulated insurance company, so plan members receive additional protection for their pensions."

"As Canadians live longer due to advances in medicine and healthier living, many people can expect 30 or more years in retirement, making it more challenging for defined benefit plan sponsors to predict life expectancy," Simmons said.

"Our customers told us there was a need to address this challenge, and we developed this innovative solution," he said. "A miscalculation of longevity risk by a plan sponsor can be costly, resulting in higher pension payout levels than what a company or fund originally planned."

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